The Commission unsuccessfully pretends to want curbing of tax evasion

Press confeence by Algirdas Šemeta, Member of the European Commission in charge of Taxation, Customs, Statistics, Audit and Anti-Fraud on the adoption by the EC of a proposal to amend the Parent-Subsidiary Directive. (EC Audiovisual Services 25/11/2013).

The European Commission, after having facilitated for decades the tax avoidance and evasion practices of multinationals with the ‘Parent-Subsidiary Directive’, yesterday decided to just reduce the size of the extra-large loop holes the big multinationals use for years to avoid and evade taxation. With a Press release issued yesterday, the Commission almost recognised that it has paid a huge service to the big business in helping them avoid and evade taxation.

The release says, “In particular, companies will no longer (with it proposed amendments) be able to exploit differences in the way intra-group payments are taxed across the EU to avoid paying any tax at all. The result will be that the Parent-Subsidiary Directive can continue to ensure a level-playing field for honest businesses in the Single Market without opening opportunities for aggressive tax planning”.

Facilitating tax evasion

It’s quite preposterous though that the Commission tries to fool the public opinion by pretending to really want to curb the tax evasion of multinationals. As if everybody else are morons, not knowing that this Directive shamelessly facilitates the tax evasion schemes of multinationals, through hybrid loan arrangements and dividend payments. From its birth this Directive was ‘conceived’ to help multinationals avoid double taxation, at a time that they already didn’t pay any taxes. The Commission just wanted to be sure that the multinationals were doubly secured from the taxman.

It’s the Commission itself admitting that. The Press release quite openly says that the big companies ‘used’ the Directive and “the result is that the payments from the subsidiary to the parent company is not taxed anywhere”. A few lines below, the Commission also accepts that the new amendment of the Directive, “will stop cross-border companies from planning their intra-group payments to enjoy double non-taxation”.

It’s obvious then, that yesterday’s decision to amend the ‘Parent-Subsidiary Directive’ is not a result of genuine interest of the Commission to stop multinationals, from stealing the taxes of poor working people who pay theirs to the last cent, plus social security. The issue has attracted the interest of the wider public, despite the self-imposed censorship in the main stream media, due to their dependence on the advertisement budgets of the big multinationals.

Public opinion outrage

On top of that, things seem to change in the international environment around the political confrontation of the totally open and direct tax thefts of multinationals. In Britain, a public opinion outrage forced the Cameron government to place this subject a bit higher on the agenda. The same is true for the US. In the European Union it seems that the next May election is the catalyst of this Commission decision.

The majority of legislators are now accusing the Commission of doing nothing to facilitate their job. Fraudulent bankers, tax evaders and arms dealers are all free to continue their trades. However, it seems that the fear the next European Parliament may be filled with anti-EU and fascist MEPs, must have terrified the Commission. This must have been the motive of this Commission decision, to slightly narrow the tax evasion and avoidance loopholes used by multinationals or at least to show it is doing something like that.

A show off of strictness

An extra proof that the Commission is not serious while speaking about curbing tax evasion and avoidance, is that it never touched the tax avoidance highway of inter-business transfer pricing, despite the fact that many EU countries have introduced relevant legislation. There exists a Transfer Pricing Forum, an expert group, created by the European Commission in 2002. Once more this Commission ‘creature’ was not conceived to curb tax evasion. On the contrary, it was created to facilitate it. The Commission itself says so, “it facilitates transfer pricing, in order to reduce the high compliance costs and to avoid (or facilitate the elimination of) double taxation that easily arises in the case of cross-border inter-group transactions”. All that at a time, when multinationals manage not only to avoid taxation, but instead are asking for, and actually receive hefty ‘incentives’ in order to build factories in a certain region or a country.

The ways of the multinationals in avoiding and evading taxation are many. Think of the tax deductible royalty payments from one interrelated firm to another, or when paying for the license of a trademark or a patented technology. Then think of the payments for intangibles between imperceptibly related companies.

Really, there is no end to tax evasion and avoidance practices in use by big business. The gains are so huge that this activity attracts not only the best professionals, but it’s the ‘raison d’être’ of entire countries and regions even within the European Union. The conclusion is that Commission cannot fool anybody.